Published Nov 30, 2022, 3:58pm CST
While home prices may be slowing, they are not anticipated to go down in the new year, a recently released annual forecast reports.
Homebuying activity has continued to cool in the Twin Cities and across the country, largely in response to increased mortgage rates. But while those rates and inflation increases have buyers seeking more affordable homes, they will be met with a market that will still see increasing prices in 2023, according to a report released Wednesday by Realtor.com, which examined the 100 largest U.S. metro areas.
In all of the areas measured, home sale prices increased; totaling a national average at 5.4% for the year. But the figure represented a slowed pace; a single digit yearly increase for the first time since 2020, the report says.
In the Twin Cities area, home prices are forecasted to rise just above the national figure, at 5.6% locally over the next year.
This “moderation” in home price growth nationally is due to a slowdown in home sales, spurred by heightened mortgage rates, the report adds.
Nationally, Realtor.com anticipates home sales will fall 14.1% to 4.53 million sales, representing their lowest level since 2012. In the Twin Cities market, homes sales are also expected to decline, though slightly, with a 0.8% drop in 2023.
"While listings in Minneapolis-St. Paul have been rising this year, as surging mortgage rates dampened demand, the overall housing market is expected to move sideways in 2023, with sales notching a slight 0.8% slide compared with this year," George Ratiu, Realtor.com senior economist & manager of economic research, said in an emailed statement.
Already, the Twin Cities area has seen a decline in pending and closed home sales, at 37.7% and 33.5% respectively, year-over-year, according to a report released in November by Minneapolis Area Realtors and the Saint Paul Area Association of Realtors. The local Realtor report also attributed the drop to higher mortgage rates. The thirty-year mortgage surpassed 7% in October, while last year saw a rate at about 3%.
Realtor.com expects the heightened rate to continue in 2023; totaling an average of 7.4%, with early increases but a slight decrease to 7.1% by the end of the year.
The drop in home sales also leads to more buyer negotiation power, but given increased costs, the situation is still not enough to push the market into a “buyer’s bonanza,” despite higher home inventory, the Realtor.com report said.
For Twin Cities buyers, Ratiu said, this means affordability will remain "a top-of-mind challenge."
“If home shoppers and sellers have unrealistic expectations, they could find themselves in a stale-mate in the year ahead,” the report said. “The 2023 housing market could become a ‘nobody’s-market,’ not friendly to buyers nor to sellers.”
The local market has stabilized a bit, Brianne Lawrence, president-elect of the Saint Paul Area Association of Realtors, said in an interview. Prices aren't "skyrocketing" like they were months ago, and agents are seeing seller-paid closing costs and home inspections coming back, she said.
"2022 was a little bit of an unrealistic expectation for buyers, sellers and realtors. A little bit of normalcy will feel nice," Lawrence added.
Minneapolis Area Realtors' President-Elect Jerry Moscowitz also noted a move toward a more typical market, though there is a continued shortage of the supply of homes. Still, buyers are able to be "a little pickier" and face less competition, he said.
The national report adds that 2023 is not expected to be a repeat of 2008, when home sales took years to recover, the report says. Home price growth will continue to slow – and possibly decline – as prices are expected to stabilize in the next two to three years. And while Realtor.com's forecast does not anticipate a recession, it does note that shifting geopolitical, financial and economic events could "shake up" the housing outlook.
Minneapolis / St. Paul Business Journal
This article was published and first shared in Minneapolis/St. Paul Business Journal.